Major Bank Levy

Major Bank Levy

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Exactly three weeks after being announced in the government’s 2017 budget, two Bills introducing the Major Bank Levy were introduced into parliament: Major Bank Levy Bill 2017 introduces the levy itself and Treasury Laws Amendment (Major Bank Levy) Bill 2017 amends several existing Acts to specify the administrative features associated with the levy.

As announced, the levy will apply from 1 July this year to ADIs with total liabilities of more than $100 billion. The levy will be imposed on a quarterly basis at a rate of 0.015 percent on an authorised deposit taking institution (ADI)’s 'applicable liabilities amount'.

Much has been said on the merits of the levy and the motives behind it. This article, however, addresses the practical: who has to pay it, when does it have to be paid and how is it calculated?

Who has to pay the levy: the 'total liabilities amount'

To ascertain whether it must pay the levy, an ADI will now be required to give Australian Prudential Regulation Authority (APRA) a report containing its 'total liabilities amount' for each quarter (the first quarter ending 30 September 2017). The content of this report will be based on a new 'applicable reporting standard' that is yet to be released by APRA.

Certain liabilities that go into making up the total liabilities amount and the 'applicable liabilities amount' must be worked out for a quarter on a daily average basis to prevent an ADI from manipulating those balances at quarter end. Liabilities requiring daily averaging include: debt securities; repurchase agreements; loans between the ADI concerned and another ADI; and loans between the ADI concerned and a foreign bank.

When must the levy be paid?

The due date on which the report containing the total liabilities amount must be given to APRA is called the 'MBL reporting day'.

On or before the MBL reporting day for a quarter, an ADI (whose total liabilities exceed the threshold, $100 billion indexed quarterly) must give the Commissioner a return relating to the levy. The Commissioner is taken to have made an assessment of the amount of the levy upon receiving this return. This ensures the Commissioner can amend an assessment of the levy. It also establishes an ADI’s objection rights.

The levy will generally be payable on the 21st day of the third month after the end of the quarter to which the levy relates. However, for the very first quarter (ending 31 September 2017) the levy will not be payable until 21 March 2018 (the date the second quarter levy is also due).

How is the levy calculated: the 'applicable liabilities amount'

When first announced in the budget, a bank’s Additional Tier 1 Capital and deposits protected by the ADI financial claims scheme were excluded from the liabilities on which the levy is imposed. As a consequence of consultation that has been undertaken since the budget, two additional adjustments are now required to be made to an ADI’s total liabilities amount in order to arrive at its 'applicable liabilities amount' (the base on which to levy is imposed):

Derivative liabilities are only included on a net basis, i.e. after being offset against derivative assets. However, while derivative positions are netted, the collateral received and posted in respect of those positions is not.

An ADI’s exchange settlement account balance (ESA) held with the RBA is subtracted from the total liabilities amount. The ESA balance for the quarter must also be calculated on a daily average basis.

Other points worth noting

As anticipated in the budget, the levy will be deductible.

Also, a new anti-avoidance law will be introduced into the Taxation Administration Act 1953 to deter an ADI from entering into schemes that reduce or defer the Major Bank Levy. This new anti-avoidance provision has the potential to be fertile ground for disputes with ATO compliance teams who will be required, if the levy is introduced, to give greater scrutiny to how an ADI manages its balance sheet.